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Ten Pao Group Holdings Limited (HKG:1979) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 4th of October will not receive the dividend, which will be paid on the 28th of October.
Ten Pao Group Holdings's upcoming dividend is HK$0.03 a share, following on from the last 12 months, when the company distributed a total of HK$0.03 per share to shareholders. Last year's total dividend payments show that Ten Pao Group Holdings has a trailing yield of 2.8% on the current share price of HK$0.9. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Ten Pao Group Holdings
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ten Pao Group Holdings paid out a comfortable 27% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 22% of its free cash flow in the last year.
It's positive to see that Ten Pao Group Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Ten Pao Group Holdings's earnings per share have been shrinking at 4.0% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Ten Pao Group Holdings has lifted its dividend by approximately 5.7% a year on average.
Final Takeaway
Is Ten Pao Group Holdings worth buying for its dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.